President Donald Trump’s sprawling tax cut and immigration bill will reduce government spending on Medicaid, but the extent of those cuts, the associated savings and the full impact on the state of Arizona may not be known for years.
Budget analysts at the Arizona Legislature have issued several reports attempting to quantify the impact that Trump’s so-called “Big Beautiful Bill” will have on Arizona. The analysis by Joint Legislative Budget Committee staff largely focused on sweeping changes to Medicaid, SNAP food assistance and federal tax cuts that could find their way into state-level tax policy next year.
Trump signed the legislation into law in July, but experts and JLBC staff agree that it is difficult to project the effects of those changes, specifically the Medicaid cuts, with any degree of certainty right now.
Medicaid
Democrats have long warned the changes to Medicaid will result in thousands of people losing health coverage and could decimate parts of healthcare systems that rely on that funding, including rural hospitals.
“It threatens to shut down five rural hospitals, and mark my words, if those hospitals close, Arizonans will die, and it will cut coverage for over 365,000 Arizonans,” Arizona House Minority Leader Oscar De Los Santos said at a Democratic campaign event in July.
The Arizona Health Care Cost Containment System, Arizona’s Medicaid program, estimated anywhere from 38,000 to 190,000 people could lose coverage due to the work requirements.
Health care executives have warned that as those people fall off the program, the Medicaid patients that remain on the rolls could also feel the effect of the changes.
That’s because hospitals serving those communities, especially in rural areas, will bring in less Medicaid dollars while serving a larger uninsured population, resulting in a cash crunch that could force them to cut services.
That could be further exacerbated as 371,000 Arizonans who buy their insurance on the Affordable Care Act marketplace could see their premiums rise as much as 55% after Congress failed to extend federal subsidies for low and middle-income households, according to the Arizona Depart of Insurance.
According to a report by legislative budget staff, an estimated 171,000 people could lose coverage by 2030 due to two of the most notable Medicaid changes, including more stringent reporting and work requirements for the “expansion population,” or the “able-bodied” adults who became eligible for coverage after the Affordable Care Act expanded access over a decade ago.
The new rules also require those people to reconfirm their eligibility twice each year, rather than once annually.
Both changes go into effect in 2027.
Republicans have defended those changes, claiming the only people losing coverage were those that didn’t, or shouldn’t have, qualified in the first place.
“We're simply saying that if you're childless and you're not working and you don't go to school and you won't look for work, well, then we're not going to have working people's tax dollars pay for you,” said state Sen. John Kavanagh (R-Fountain Hills). “And that's pretty reasonable.”
And Congressman Juan Ciscomani, who voted for the bill, argued the cuts would help keep the program viable for the most vulnerable Americans after initially signing a letter stating he opposed cuts to the program.
During a roundtable in August, Ciscomani said, “This does not impact the population that needs it the most.”
But critics have warned that some people who do qualify for Medicaid could lose coverage due to the new requirements.
“This will just cause people to lose care because of administrative red tape,” Gov. Katie Hobbs said.
Savings
The total cuts in Medicaid spending — and the associated federal savings — is still hard to pin down.
That’s because much of that anticipated savings will come from people falling off the rolls for failing to fulfill new work and reporting requirements.
“So one of the reasons it's really hard to forecast all these requirements will impact both the number of people on the programs as well as the state cost of the program is that we haven't really seen them implemented over the long term in other states,” said Beth Kohler, who represents the Arizona Association of Health Plans.
The few states that have implemented work requirements have seen a large number of people leaving the program, Kohler said. But she cautioned that those changes are fairly recent, so it’s difficult to project long term impacts.
In one of those states, Georgia, administrative costs have skyrocketed and the state faced a massive backlog of applications, according to reporting by Pro Publica and The Current.
Legislative budget analysts project the legislation will reduce total Medicaid spending in Arizona by $363 million in 2027. That includes $123 million that will result from people in the so-called expansion population dropping off the rolls due to new reporting requirements.
The work requirements could reduce federal spending by $299 million, according to the Joint Legislative Budget Committee staff report.
But legislative analysts acknowledged their estimates are far from perfect and rely on “highly speculative” assumptions from Congressional budget staff.
And Kohler said there are real questions about whether the federal government will realize the anticipated savings.
In fact, she said, in the long run, the changes to Medicaid could result in costlier payouts.
That’s because certain healthy adults currently enrolled in Medicaid who continue to qualify under the new law may still drop out of the program anyway due to the more burdensome reporting requirements.
“What you are likely to find when you put significant bureaucratic hurdles in front of people to retain their health coverage is that individuals who are healthy and don't immediately need to use their coverage will not jump through those hurdles and will lose their coverage,” Kohler said.
But she said many of those people may get back on the program later if they’re facing a major medical issue — and then, the costs to the Medicaid system could be higher, because that person has gone without preventative care for years.
“So they’ll get back on the program, and the result of that will be a higher cost within the system for everybody,” Kohler said.
State budget
One thing is certain: state budgets will realize far fewer savings as a result of the Medicaid changes, because the federal government covers 90% of expenses related to the expansion population, according to the Joint Legislative Budget Committee report.
JLBC’s early projections estimate the Medicaid reporting and work requirements will save the state general fund around $15 million in 2027. But implementing the changes will also result in new administrative costs, according to JLBC.
Georgia’s work requirement program cost taxpayers nearly $87 million in administrative costs in its first two years, according to Pro Publica.
And AHCCCS, this state’s Medicaid agency, is asking for an additional $71 million, including $19 million from the state’s general fund, to hire 320 new people to meet operational changes resulting from the Big Beautiful Bill, according to the agency’s most recent budget request.
And then there is the question of whether the state will step in to offset some of the lost federal dollars to prevent some of the affected people or hospitals from dropping off the rolls. Most of the changes to Medicaid are set to kick in 2027, after the deadline for the governor and Legislature to approve the next state budget.
“And we're really not going to know what the full dollar amount is on all of these things, from the Big Beautiful Bill until we see how can we figure out how to shift some of those costs to the states and have the states be able to adjust their budget, so we can still provide adequate services to those that would need it,” said Jim Rounds, an economist who has advised the legislature.
Prior to the passage of the federal legislation, Hobbs warned the state didn’t have the money to fill the gap.
Now, she said the state is exploring ways to “mitigate” the effects of the cuts, including working with philanthropic organizations.
“It's certainly a high priority, but there's a lot of competing priorities,” she said.
Republican lawmakers don’t appear eager to spend state dollars to supplement federal cuts.
“So the question is how many people will drop off, but I'm not losing any sleep if somebody who could work or isn't going to school expects me to pay their health insurance, you know, good riddance,” Kavanagh, the Republican state senator, said.
Kavanagh also said he doesn’t expect the state to incur significant costs as a result of federal changes, other than around $18 million to hire new employees.
